Cantwell on federal Basic Health Plan:‘We think it should be implemented and it should be implemented now’

WASHINGTON, D.C. – Today during a Senate Finance Committee hearing, U.S. Senator Maria Cantwell (D-WA) urged President Obama’s Treasury Secretary nominee and former White House Chief of Staff, Jacob Lew, to help push forward on the implementation of a key provision in the Affordable Care Act: the federal Basic Health Plan Option. During the nomination hearing, Cantwell also questioned Lew on implementation of Wall Street Reform and efforts to reinstate Glass-Steagall safeguards for the financial market.

Cantwell’s questions to Lew on the Basic Health Plan come on the heels of a Department of Health and Human Services (HHS) announcement last week to delay the program’s implementation for a year. Cantwell had championed the federal Basic Health Plan Option in the Affordable Care Act, which was designed to give states the option to create a federal Basic Health Plan in 2014. But the HHS failed to provide timely guidance to states on implementing it in 2014.

Modeled after Washington state’s successful Basic Health Plan, the federal Basic Health Plan option enables states to negotiate directly with health insurers to provide high quality health care coverage at a lower cost to those ineligible for Medicaid.

“There is one provision that’s not being implemented: the Basic Health Plan,” Cantwell said to Lew during today’s Senate Finance Committee hearing on his nomination. “Do you think if the Affordable Care Act specifies that the Basic Health Plan should be implemented in 2014, that it should be implemented in 2014? Is there a bias somewhere in the administration against lower cost, managed care delivery systems?”

Lew responded that he was not aware of any such bias. He added: “I’d be happy to follow up and work with you on that specific issue. And find out where it is in the queue.”

Cantwell concluded: “I can tell you that we think it should be implemented and it should be implemented now. So I certainly will take you up on that.”

Cantwell also questioned Lew on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Cantwell was a leader in pushing for tough new regulations of derivatives during final House-Senate negotiations on the bill. The final legislation, signed into law on July 21, 2010, included an amendment Cantwell authored that imposes tough penalties for evading the clearing and exchange trading requirements for derivatives.

However, as Dodd-Frank is being implemented, the financial market is shifting in ways that may create more systemic risk. For example, to avoid new rules regulating cleared swaps, the financial market is responding by moving trades to the futures market, which will be significantly less regulated.

Cantwell began her questioning on Wall Street reform by asking Lew his views on restoring Glass-Steagall safeguards to the financial market. During the Wall Street Reform debate, Cantwell and Senator John McCain (R-AZ) led the charge on Glass-Steagall, advocating for their bipartisan amendment to separate commercial and investment banking to be included in the final legislation.

Cantwell asked: “Just so everyone understands your philosophy on the regulatory side of things, do you believe in the re-implementation of Glass-Steagall?”

Lew responded: “I think the problems we had leading up to the financial crisis were evidence that our financial regulatory system did not keep pace with the growing complexity of the financial system. And I think Dodd-Frank was a critically important step to reasserting the proper regulatory oversight of an industry that’s critical for the health of our economy. …I don’t think it’s just resuscitating a 1930s statute. It’s a question of what do we need to do to manage the financial challenge.”

“So I’ll take that as a no,” Cantwell said. “And to that point I don’t see how you can tame this issue. As we now see CFTC in the treatment of swaps and futures as different clearing measures. Aren’t you worried that that’s going to provide more systemic risk as well?”

Lew responded: “I think that if you look at the issues, things like margin requirements for swaps, it’s very important that we get on top of regulating things that create systemic risk.”

Cantwell also asked Lew about the administration’s proposal to cap the municipal bond tax deduction at 28 percent, as well as whether the Treasury Department planned to take action regarding the Foreign Investment in Real Property Act to help jump-start private investment in commercial real estate.

A complete transcript of Cantwell’s exchange with Lew follows:

Senator Cantwell: Thank you, Mr. Chairman. Congratulations Mr. Lew on your nomination. It’s great to see your family here today. And I definitely have a lot of fiscal, financial questions for you. But you mentioned in your opening statement about Medicare and getting the delivery system right. The President last night mentioned that in his State of the Union address as well about focusing on quality as opposed to frequency and tests. I was curious, were you involved, as chief of staff, in the discussion of the implementation of the Affordable Care Act?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: Senator, both in my time at OMB and as chief of staff I did pay attention to the implementation of the Affordable Care Act. Enacting the law was a critical step and implementing it is necessary for it to be in place.

Senator Cantwell: Do you think that if there is a provision of the Affordable Care Act that is supposed to be implemented in 2014 that it should be implemented in 2014?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: We have been working very hard to be on schedule to getting the exchanges set up and having the Affordable Care Act in place in 2014.

Many departments have been involved in that in addition to the Department of Treasury. The Department of HHS, the Department of Labor, the Office of Personnel Management, and it was not always easy because we had to work mighty hard to get the funding to implement on schedule. But I feel we are in a pretty good place.

Senator Cantwell: Well there is one provision that’s not being implemented: the Basic Health Plan. And I know the President tried to express an opinion to help push things along. But I guess my question is do you think if the Affordable Care Act specifies that the Basic Health Plan should be implemented in 2014, that it should be implemented in 2014?

I guess I’m also asking, is there a bias somewhere in the administration against lower cost, managed care delivery systems? That the Act calls for in exchange for ‘the exchange.’ Is there a bias over there that somehow the Affordable Care Act means implementing only those pages related to the exchange and punting everything else even though they’ve been more cost effective delivery systems?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: Senator, I’m not aware of any such bias. I do know that there has been an enormous amount of work to get the exchanges setup and the various parts of the architecture. I’d be happy to follow up and work with you on that specific issue. And find out where it is in the queue. And I’ll follow up on that.

Senator Cantwell: I would greatly appreciate that. I think there is a very big concern on my part and several other members that somehow people may be asking states to forgo what have been more cost effective solutions for that population just above the Medicaid level in exchange and almost maybe even making it more expensive and putting those states, pushing that population onto the exchange as some holy grail. And I can tell you that we think it should be implemented and it should be implemented now. So I certainly will take you up on that.

I want to turn to financial issues. You and I have had a chance to talk, and we could talk for hours. But just so everyone understands your philosophy on the regulatory side of things, do you believe in the re-implementation of Glass-Steagall?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: Senator, as we discussed when we had this conversation, Glass-Steagall had been over the years become something of an anachronism. Much of the activity in the financial world had gotten beyond it. And I think the problems we had leading up to the financial crisis were evidence that our financial regulatory system did not keep pace with the growing complexity of the financial system. And I think Dodd-Frank was a critically important step to reasserting the proper regulatory oversight of an industry that’s critical for the health of our economy. I think as we go forward we have to ask questions as we complete the implementation of Dodd-Frank. Are there more actions that are needed? And they have to be actions that make sense in 2013. So I think going back, while I’m a student of history – and New Deal history in particular is of great interest to me – I don’t think it’s just resuscitating a 1930s statute. It’s a question of what do we need to do to manage the financial challenge.

Senator Cantwell: So I’ll take that as a no. And to that point I don’t see how you can tame this issue. As we now see CFTC in the treatment of swaps and futures as different clearing measures. Aren’t you worried that that’s going to provide more systemic risk as well?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: I think that if you look at the issues, things like margin requirements for swaps, it’s very important that we get on top of regulating things that create systemic risk. And I didn’t mean to be answering the prior question yes or no. I think it’s just a little bit more complicated. I think the question of is there a need for any further consideration of financial regulation is one that just comes in sequence after implementing Dodd-Frank. And I come to the issue open-minded. Knowing that we can’t let what happen leading up to 2008 happen again. We can’t let a regulatory system become outstripped by the complexity and organization of a financial system which our economic life depends on.

Senator Cantwell: Well I’ll look forward to more discussion on that point then. Two other issues I wanted to bring up. I just don’t understand the administration’s idea of capping the municipal bond tax deduction at 28 percent. If we want to encourage more investment one thing I do believe the federal government does is provide cheap capital whichever way. And when all these banks were putting money into derivatives, you can’t convince me that they are really interested in the bottom-line here. So to me a policy on capping the municipal bonds at 28 percent, tax exempt bonds, I’m curious as to whether you are going to continue that policy. And also on the Foreign Investment in Real Property Act, whether you think the Treasury Department is going to complete that IRS notice and take action that would help jump-start private investment.

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: Senator, the administration’s proposal which would have limited the value of deductions in the top tax bracket to 28 percent was designed to try and restore some equity in the tax code and to generate revenue that we need for meeting our fiscal targets. It wasn’t specifically directed at municipal bonds or at other specific areas of tax activities. It was also meant to be a place-holder that we really should have tax reform. And we should make specific policies deciding what’s in and what’s out and the proper tax rates are. But we put it in as a fall back saying that if tax reform doesn’t happen this is something that would help us get to the revenue targets we need. I’d be happy to follow up with you on these issues of the individual component parts of tax reform. But I would say as a general proposition, that the hard decisions in tax reform will in many cases put us in places where there are things that many of us are sympathetic to, where we will have to curtail tax benefits if we are going to broaden the base. And I think that as a general rule if there were a lot of easy decisions, tax reform would have happened a long time ago. And I think there are going to be hard choices.

Senator Cantwell: And so on the foreign investment is that something you are going to take action on or are we going to have to act here?

The Honorable Jacob J. Lew, of New York, to be Secretary of the Treasury, United States Department of the Treasury: My understanding is that those rules are progressing. If confirmed I would pay attention to them and work on them and work with you to get them finished.